The resource curse: why oil production is destroying the economies of some countries

In the 60s of the last century, oil became the main “engine” for the world economics. Black gold has retained this status today.

Consequently, at first glance, countries with oil reserves should occupy leading positions in the world economy and be many times higher than others in terms of living standards. However, in most cases this does not happen. Moreover, for some states, the presence of oil deposits becomes a real curse.



But what does this have to do with? It's all about the ability to properly manage the wealth that has fallen on one's head.

Many countries, having started oil production, began to export it, since their economies could not “digest” such large volumes of this resource. As a result of the sale of raw materials, foreign money began to flow into the country. Their massive exchange for national currency strengthened the latter, which became more expensive.

The increase in the value of the national currency, in turn, made the import of foreign goods more accessible, which gradually replaced the products of local producers.

At the same time, the authorities of the “sharply enriched” state solved any problems in the social sphere and economy, simply “plugging up” them with money received from the sale of oil.

This is exactly what happened in Venezuela, which in the 70s was the richest country in the world. However, in the 80s there was a collapse in oil prices, which destroyed its economy, which existed only through the sale of raw materials.

Another thing is for countries like Norway and Qatar, which accumulate oil revenues by introducing fiscal rules. As a result, today they have some of the largest financial cushions that will help them withstand any potential economic shocks.

By the way, there is such a capsule in Russia. It's called the National Security Foundation.